Southeast Asian digital economy emerges as a beacon for investors
American poet and civil-rights activist Maya Angelou’s immortal words, “In diversity, there is beauty and there is strength,” fit well with the cultural and industrial diversity of Southeast Asia. The diversity that is seen in the SEA markets is a magnet for investments.
If one country has an extraordinary talent pool, then there’s another where operational costs for a certain sector are much lower in comparison with other countries. As a regional bloc this offers unique advantages. Ever since the Association of the Southeast Asian Nations (ASEAN) was set up in 1967, local economies in the region have seen tremendous growth.
A population of more than 655 million, corresponding to 8.74% of world’s population, is in itself a major opportunity. The cherry on the cake is the youthful demographics of the region (more than half of the ASEAN population is under 30 years old). So there is a whole lot of workforce potential as well.
According to PricewaterhouseCoopers’ long view forecast, by 2050 Thailand, Malaysia, Vietnam and the Philippines will come into the league of world’s top 25 economies, while Indonesia is likely to be ranked as the fourth-largest economy in the world.
Investments fueling digital economy
Even a cursory look at some of the recent investments in the Southeast Asian market are revealing.
- Grab, the dominant ride-hail startup in Southeast Asia, received combined funding of US$2 billion from China-based ride-hail player Didi Chuxing and SoftBank.
- Alibaba invested $1 billion in local e-commerce player Lazada, raising its stake from 51% to 83%.
- Tencent made a 40% investment in Garena Holdings, a mobile commerce player.
Even in less prosperous Vietnam, manufacturing now makes up a third of the economy, and it has become one of the world’s top electronics exporters, with Samsung producing about 40% of its phones there.
In the whole region, the manufacturing and services sectors saw the highest concentration of FDI (foreign direct investment) flow according to the ASEAN Investment Report 2018. In 2017, Malaysia was the top recipient in terms of capital in Southeast Asia with $421 million in foreign outlay, trailed by Vietnam and Thailand.
The region has also earned the tag of a great startup pad, as it plays host to more than 7,000 startups, with new businesses being registered every day. In fact, 2017 saw record funding in the Southeast Asian startup space, pulling in $7.86 billion from investors – a more than threefold rise from 2016.
The talent pool also scores in Southeast Asia thanks to the region’s dominance in enticing new market entrants and assisting in the expansion of existing businesses. The youthful demographics of the region make it all the more attractive.
Malaysia, a lucrative spot
Malaysia’s digital-economy vision has pumped up the region’s image, as it is the leader in this regard in the ASEAN bloc. Its digital economy contributed 18.2% to Malaysia’s gross domestic product in 2017 and is expected to exceed the projected target of 20% earlier than 2020.
This growth is being noticed at a global level and has been attracting more foreign investors lately. Even the government is taking specific measures to keep up the momentum, with initiatives such as the Malaysia Tech Entrepreneur Program – designed to attract overseas tech founders who plan to expand in ASEAN. The Malaysia Digital Hub initiative provides physical designated spaces for growing startups.
There is also a Digital Free Trade Zone (DFTZ) initiative that has brought on board 2,000 local small and medium-sized enterprises using the platform to export their products globally. A collaboration between Kuala Lumpur City Hall and Alibaba Cloud also happened recently, to make KL the first city outside China to implement artificial intelligence–powered smart-city solutions.
When Denave, an Indian sales-enabling service, began expanding globally, it started with Singapore, and Malaysia was an obvious choice for a center. Since it was set up in 2012, it has been an upward journey, as the Malaysian government rolled out a slew of benefits and incentives for foreign entities.
Last year, Denave obtained Multimedia Superior Corridor (MSC) status in Malaysia. This gives it several incentives to grow its investments and operations.
Incidentally, the MSC was a measure instituted in 1996 by the prime minister at the time, Mahathir Mohamad. He is back in the saddle again, and this is likely to fuel Malaysia’s growth even further.
MSC accreditation is one of the best government policies that have powered global trade in the ASEAN region. With attractive sops such as 100% exemption from taxable statutory income, duty-free import of multimedia equipment, a strong intellectual-property-rights regime, and fast-tracked visas for expatriates and foreign knowledge workers, Malaysia has emerged as one of the best Southeast Asian markets for foreign companies that set up operations there.
This accreditation also provides a single point of contact with public offices through the Malaysia Digital Economy Corporation, or MDEC.
Being one of the fastest-growing consumer markets, Southeast Asia offers multiple cost-competitive and workforce-related advantages to foreign businesses.
The region is also experiencing lucrative deals in technology and Internet-related businesses. In Southeast Asia, Internet companies will require $40 billion to $50 billion in investment over the next 10 years, according to a joint study done Google and Temasek.
Clearly, the opportunities accessible in this large emerging economy are extremely appealing. With proper planning, research and strategy, entrepreneurs can take great leverage of the current situation and make the most of it.
Will the growing South Asia economies of India, Pakistan, Bangladesh and Sri Lanka take note? That is another story.